What is Project Budget?

The project budget is prepared for a specific project for a specific period of time to achieve the specific result. The project budget is prepared with the objective to track the actual cost of the budgeted cost. Furthermore, the comparison and variance analysis help our understanding of what could have been better.

The project budget provides a fair estimate of how much the project will cost. By and large project budget helps in cost-benefit analysis. While implementing the huge projects, it is better to check the feasibility of the project. The project budget checks the feasibility of the project. Project budget promotes future planning.

The process to create a project budget

The team of Project budget consists of a sponsor of the project, project manager, and the team.

Step I)

The preparation team shall check on the annual budget which is prepared initially. This is the starting point. Moreover, also refer to the budgetary and actual information for the similar projects completed in past.

Step II)

The project manager shall identify all the costs associated with the project tasks. In order to derive the raw material cost, previous period cost and the prevailing market price are considered. In the same way, labor cost arrives from the number of hours required and the wage rate per hour. Operating costs such as customer support, software license, advertising costs are to be considered.

Step III)

Moreover, the project is affected by many unknown factors. Ideal project budget includes provision for uncertain costs. It will help in better planning and does not spoil the profitability of the organization. The contingency percentage shall derive from the past projects.

Some expert tips

Experts Team

Undeniably, the best team produces the best results. Accordingly, the team shall consist of experts from the organization. The experts who managed similar projects in past can be a great help. In fact, they can provide valuable inputs.

Use historical data

Particularly, Use historical data for a similar project if available. Certainly, it is a good start for the preparation of the project budget. You can make the improvements on the lessons learned from the previous budget.

Share with team

Once the budget is prepared, it should be shared with the entire top-level management team to provide the inputs. Moreover, it also helps in confirming the accuracy of the budget.

Flexibility

If there are changes in the budget and if there are changes which are approved by the management or change control team, the budget can be modified. Unquestionably, this flexibility helps in revising the baseline or budgeted cost.

Real-time Update

It is advisable to update the budget on a real-time basis, In order to achieve better results.

Get on track

The budget management team shall track the deviation from time to time. As soon as there is a deviation, the project team shall get back on track. Accordingly, it helps to align the budgetary and actual performance. Another key point to note here is the preparation of work schedule can help track the resources. It includes time for employees, raw materials, and overheads.

Brief project notes

Other cost includes the traveling cost, project preparation cost, and other such costs.

The total project cost is USD 179,210.

Advantages of Project Budget

Better Planning

A project budget is an important tool for project planning. It helps in better execution of the project. It indicates the available resources and how to effectively utilize those resources. The project budget is the financial roadmap of any organization.

Prioritization

Sometimes the initially allocated proportion of finance is not sufficient for the completion of the project. The project budget shall help in prioritizing which part of the budget is important and required to be completed on urgent basis.

Handy Management Tool

At any time, the management uses as a tool for verifying that the project team is achieving the targets as per the budget. The deviation can be easily monitored in detail. With this in mind, the top management directs the subordinates to act accordingly.

Disadvantages of Project Budget

Overlapping

If the project is big, it may so happen that the team may consider one sub-task twice. This is a mistake. Because of the same, the budget is allocated twice.

All the preparer of the project budget meets regularly in order to achieve the overall success.

Difficulty in evaluation

In case the project is implemented by the government or not for profit organization and there is no any monetary returns, it may be difficult to evaluate.1–3

About The Author

Sanjay Borad is the founder & CEO of eFinanceManagement. He is passionate about keeping and making things simple and easy. Running this blog since 2009 and trying to explain "Financial Management Concepts in Layman's Terms".

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